hedging: good or bad?

[dhenwood@xxxxxxxxx (Doug Henwood)]

In his article, "Futures markets: hedging & speculation" in the New
Palgrave Dictionary of Money & Finance," David Newberry argued that hedging
may not be the good thing it's usually taken to be. "In particular," wrote
Newberry, "if prices are stabilized, but quantities remain unstable,
incomes may be less stable than if prices were free to move in response to
the quantity changes."

The K/PK line on price flexibility is that it can be a bad thing. What do
the comrades make of Newberry's argument?

By the way, it's interesting that both Newberry's article and Barry
Schachter's on options (also in the NPDMF) fail to make a strong
theoretical argument for the existence of derivatives markets. They
rehearse the standard arguments, but without much conviction.

Doug

--

Doug Henwood
[dhenwood@xxxxxxxxx]
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